1H17 CNP of RM248.1m was inline with our but below consensus full-year estimates at 47% and 43%, respectively. In terms of property sales, while 1H17 sales of RM376.0m are still lagging behind our and management’s full-year target of RM1.1b, we are banking on a stronger 2H17 performance. Single-tier interim dividend of 7.0sen was declared, higher than our full-year expectations of 9.5sen. No changes to FY17-18E CNPs. Maintain MARKET PERFORM with an unchanged SoP-driven Cum/Ex-TP of RM4.25/RM1.82.

Within ourexpectation but below consensus’. SUNWAY’s 1H17 CNP of RM248.1m is inline with our full-year estimate but below consensus’ at 47% and 43%, respectively. We believe that consensus could be slightly bullish with their development margin assumptions, especially on its property development division. 1H17 property sales stood at RM376.0m which is still lagging behind our and management’s full-year target of RM1.1b. However, we believe that our and management’s sales target is achievable largely due to timing of launches, which are skewed towards 2H17. Single-tier interim dividend of 7.0sen was declared, which makes up 73% of our full-year expectation of 9.5sen.

Results highlight.YoY, 1H17 CNP grew 7% on the back of its revenue growth of 5%. Most of its division registered revenue growth ranging from 4-32% with its property division being the only outlier that saw a decline of 29% in revenue due to lower contribution from its local ongoing projects. On pre-tax level, all segments, except for its property development and quarry divisions, registered decent pre-tax growth of 10-72%, especially for its ‘others’ division, which registered the highest growth of 72% as it is driven by better contribution from its healthcare and building material division. QoQ, 2Q17 CNP grew 30% underpinned by 14% growth in revenue. This time around, its property development and quarry segments are the star performers as they registered segment revenue growth of 87% and 29% with pre-tax margin expansions of 11ppt and 5ppt resulting in segment PBT growing by 200% and 634%, respectively. The impressive improvement in these two divisions were driven by higher local project contributions for its property division while its quarry division saw better sales volume for aggregates and premix coupled with a higher aggregate price.

Outlook. In terms of earnings delivery, we are confident that SUNWAY would be able to deliver our forecast earnings for the year premised on its strong property unbilled sales of RM1.2b with 2-year visibility, a robust outstanding order-book of RM4.3b that provides 2-3 year visibility and other divisions that have been generating decent growth. In terms of property sales, we are expecting a stronger 2H17 performance largely due to timing of launches, which are skewed towards 2H17.

Earnings unchanged. Post results, there are no changes to our FY17- 18E CNPs of RM522.0m and RM543.0m, respectively. However, we raised our FY17-18E higher to 14.0sen as their 1H17 single-tier interim dividend of 7.0sen was higher than our earlier expectations.

Reiterate MARKET PERFORM, with an unchanged SoP-driven Cum/Ex-TP of RM4.25/RM1.82 due to its unexciting sales trajectory while we remain comfortable with our valuations as follows; (i) applied property RNAV discount is 52%,(ii) factored in a remaining RM1.7b worth of GDV replenishments, (iii) already pegging premium valuations of 27.0x Fwd PER to its healthcare division.

Risks include: Weaker-than-expected property sales and construction replenishment, higher-than-expected administrative costs, negative real estate policies, and tighter lending environment.

Source: Kenanga Research - 30 Aug 2017